Navigating the Wide-Format Sea
Five industry experts scope out the year ahead.
Juan Sebastián Elcano of Spain was the first seaman to navigate the Earth back in the early 1500s (the more famous Ferdinand Magellan initially led the expedition, but never completed the trip, being killed en route). The expedition’s original objective had a distinct business hook: Finding a more direct route to the Spice Islands. But the tumultuous three-year journey ended up plotting an oceanic course that would be followed by navigators for years to come. Along the way, the crew observed scores of animals never seen by Europeans, spotted new astronomical bodies in the Southern hemisphere, and even helped establish, upon return, a need for the International Dateline.
They did all this with the navigation technology of the time—little more than a compass and astrolabe. If you could step back in time and provide Elcano and Magellan with, say, a high-end telescope with modern optics or perhaps even a GPS unit, you’d have to assume they could shave quite a few days from their voyage’s timetable—and probably avoid more than a few troubles along their trip.
Utilizing technology to achieve business goals (and even larger adventures) is a familiar concept in the wide-format market as well, and proper use of these technologies can certainly help your company stay on course. To aid you in circumnavigating today’s perilous, wide-format waters, we’ve gathered together five experts in the wide-format marketplace and asked them to address some of the critical issues facing the industry.
Our roundtable experts include: Bill Dundas, director of technical and regulatory affairs at the International Sign Association (ISA); Adam Florek, research analyst, Lyra Research’s Wide Format Printing Advisory Service; Tim Greene, director, Visual Communications Technologies Consulting Service, InfoTrends; Dan Marx, vice president, markets and technology, the Specialty Graphic Imaging Association (SGIA); and Patti Williams, consulting partner, I.T. Strategies.
Last year in this space, we predicted challenging times ahead. And, for better or worse, we were generally correct. What does the industry need to do in order to dig itself out of the hole we find ourselves in? Can 2010 be a turnaround time?
Dan Marx, SGIA: I’ve seen cautious optimism among print providers, and most agree we’ve passed the worst of the current downturn. There has, however, been a weeding out: Some companies have been acquired, others have disappeared. Most companies, however, are busy enough to report at least modest growth. In fact, our own Financial Outlook Survey, conducted earlier this year, showed overall optimism from positive growth. Reason to be optimistic? Sure. Evidence that it’s all uphill from here? No.
Tim Greene, InfoTrends: Different parts of the worldwide wide-format market are moving at different rates. Our data suggests that we are looking for the rest of ’09 and 2010 as the runways for recovery. We think by 2011 we might be back at the first half of 2008 business levels. Some of our recent buyer data supports the idea of a recovery in the US during the next nine months, while some of our data from Europe and the rest of the world indicates that the second half of 2010 will be the timeframe for their recovery.
Adam Florek, Lyra: A consensus is forming among economists that economic growth will return in the second half of 2009. During the period of negative economic growth, however, print service providers were absolutely battered. Sadly, no single type of shop has managed to escape the epic downturn that our market has seen. Revenue declines of 30 to 40 percent have been the norm so far this year. Compared to the hideous numbers we’ve seen in 2009, there should be some kind of rebound in 2010.
Patti Williams, I.T. Strategies: Our 2009 Wide-Format Graphics Forecast shows that 2008 actual revenues were down 10 percent [while] 2009 revenues have declined a further 11 percent compared to 2008. The industry will see a three-year recession of its own, with 2008 revenue levels not regained by the market until late 2011, although revenue for all wide-format sectors will climb 1 percent by 2012.
Bill Dundas, ISA: The latest economic forecasts and the recent performance of the stock market portend a recovery that begins to build momentum during the fourth quarter of this year. Because demand for commercial signs and graphics typically is a precursor to stronger growth in the larger economy, we expect to see significant improvement in business conditions by the end of the year and extending into 2010. But a persistently high vacancy rate in retail shopping centers and other commercial properties seems likely to moderate this growth, particularly in comparison to the rate experienced prior to 2008.
Florek: And I’ll add that while I think there will be a rebound, I believe it will be far from robust. Overcapacity is the principal problem that the wide-format market faces. For example, the number of reprographic firms and sign shops is still too high and is likely unsustainable—so we expect the shake-up in the industry to continue in the short run. This is not unusual, though, since a high number of firms tend to exit the market at the end of an economic downturn. Another worrying sign has been the drop in advertising spending. Spending on out-of-home advertising has stabilized. The problem is the level of spending in 2009 has fallen 15-20 percent from the comparable period from a year ago. Surely, out-of-home advertising spending will begin to rise again, but corporations have slashed their marketing budgets, and the downturn has led corporations to become vigilant in eliminating wasteful spending.
Williams: The sustained market loss of revenue over time is driven by the accelerated decline of some already mature sectors. Aqueous and low-end or “eco” solvent get hit hard and [will] only come back partially. UV is temporarily held back, but will then accelerate its growth at the expense of other technologies.
Print service providers are trying a variety of options to combat the down economy and bring in more customers and jobs to their shops. What are some of the more intriguing ways and options you’ve come across?
Greene: There are at least two sets of strategies: Sales strategies and operational strategies. I have seen companies trying everything on both fronts to reduce operating costs and making strategic investments to try to drive new sales by selling new applications.
Marx: We see a new kind of blurring of the boundaries in our industry, as companies inside and outside our industry seek to increase their revenue flow and keep the customers they have. More and more commercial printing companies are viewing wide-format devices as much more than “proofers”—they are investigating what wide format can do for them and how they can sell “packaged” solutions to their customers. On the flipside, we’re also seeing companies such as t-shirt shops making small capital investments (generally solvent inkjet) to allow them the ability to print signs and banners, or do vehicle graphics, for their customers. They see it as a valuable add-on to their core business, which has been shrinking of late.
Florek: The most notable trend we’ve seen is the further migration of services in-house. To compete for customers, print service providers have, by necessity, become one-stop shops for customers. Perhaps the most interesting development has been the increasing number of shops to offer consulting to their customers on areas such as placement and marketing. To get ahead, these companies no longer market themselves as “printers” per se, but instead as printing companies that offer solutions. In general, the downturn has accelerated the diversification of services that shops offer. To grow and even to survive, companies must reach beyond their traditional business. Hence, we’re seeing reprographers and photo labs entering the graphics business and commercial printers embracing digital technology.
Williams: One example is printing on fabric for signage and non-signage applications. I recently heard of one company that is printing linen banners for a cosmetics company. Some companies, such as The Art Dept., Inc. in Mount Holly, New Jersey (www.customprintedfabric.com) have figured out how to directly reach the consumer, creating incremental growth for their business and the market in general. We need more—and we will see more—of these types of applications.
We’ve seen a relatively calm year when it comes to new technologies being introduced to the marketplace, would you agree?
Florek: It has been a calm year in terms of new wide-format technologies, at least compared to other years. It’s probably natural to have no earth-shattering releases this year. Last year, we had Drupa, with many new prototypes and products unveiled there to make a splash with the industry. So it’s natural for the pace of new technology to cool off. And, like everything else, the economy is the story this year. Customers, and some vendors, are risk-averse in a recession and don’t want to make a risky (and perhaps expensive) investment on a new technology platform. Still, there are signs that new technology will soon bolt onto the wide-format scene. For example, new ink technologies unveiled at last year’s Drupa—like Océ’s Crystal Point and Xerox’s cured gel technology—may be leveraged in marketable products relatively shortly.
Marx: The surface of our industry waters may be calm, but there’s much going on under the surface. Sadly, the recent economic conditions have put a damper of what, in better times, would be seen as a revolution in our industry, as high-production inkjet devices have come to the fore. These machines offer both high speed and excellent print quality. For the first time, inkjet for graphics applications is truly demonstrating its potential to compete and, dare I say, potentially replace, analog processes. Some companies are investing in these technologies today, and many others are waiting for the economic go-ahead. I believe that when the economy is truly back, there will be a proliferation of high-production devices entering print shops, transforming the digital graphics industry.
Greene: I think we’re in a phase where we’re seeing a continuous stream of incremental improvements but few breakthroughs. There are a couple of technologies that represent potential breakthroughs—including HP’s Latex, although that was publicly introduced more than 12 months ago. Of those that I know of, I believe Latex has the best potential.
UV continues to be the hottest printing technology, agreed? And solvents appear to be losing quite a bit of ground right now, yes?
Williams: Agreed, the only technology segment that is growing is UV, where revenues are expected to grow from $1.6 billion in 2008 to $3.2 billion by 2013, a CAGR of 15 percent.
Florek: UV technology has been the hottest or fastest-growing wide-format ink technology for much of the first decade of the 21st century. I should point out, though, that like the rest of the wide-format market, shipments of UV-curable hardware, ink, and media will plunge in 2009. Still, compared to the rest of the wide-format market, the future of UV-curable technology is bright. One significant reason is it’s becoming less expensive to operate UV-curable devices. Another reason is the need for print providers to find new markets, and the versatility of UV-curable printers—which print on a wide range of substrates—enables shops to do just that.
Marx: UV is on the rise for a number of reasons. First, it’s the most environmentally preferable ink system that’s widely used in our industry today. Second, it’s the ink system that will adhere to the widest variety of substrates—now also including flexible surfaces—and provide a durable print. Third—and this is of paramount importance when we consider the future of our industry—UV offers instant cure, which means the print is dry—period. As high-production inkjet devices go faster and faster, there will be no time to allow for drying. Last, an instantly dry print can be sent immediately for finishing, which speeds the process and allows for even faster completion of the job. Solvent is fading because it’s not environmentally favorable, offers less substrate compatibility, and dries through evaporation, which slows the process.
Greene: Yes and yes. We see robust solvent in significant decline and UV-curable growing at more than 20 percent per year.
Florek: The high-end solvent segment has long declined from its previous height [and] in 2008, we saw the beginning of what could be a steep downturn for the manufacturers of low-end solvent printers. Those manufacturers have not done themselves any favors by not releasing much in the way of breakthrough products recently. The solvent segment is now long established and has become very saturated (although perhaps not as saturated as the aqueous segment). To rejuvenate the segment, manufacturers need to get customers to upgrade to new devices and the current slate of products simply fails to do that. Once you take into account the brutal landscape for small sign shops, then you can understand just how difficult it is for companies that produce solvent machines. Once the economy recovers, business should bounce back for these OEMs, but demand for solvent technology should continue to wan in the long run.
One technology, by the way, that has taken another hit is photo printing—Océ dropped its Lightjet line earlier this year, leaving just a few players in that market. Is this the beginning of the end of that technology or will it always have a place?
Marx: Several years ago, I was touring a facility where the owner referred to “inkjet quality” and “Lightjet” quality, Lightjet being for those color and detail-critical prints that inkjet just could not hit. Technological changes in inkjet printing, particularly the rise of grayscale or variable-dot printheads, have closed this gap on detail, color, and print quality at a lower cost, rendering laser-based photo-imaging technologies such as the Lightjet and Lambda less critical to a digital workflow. In fact, I was touring a different facility earlier this year, and was told by the owner, “Here’s our Lightjet machine—we really don’t use it much anymore.” Increasingly in our industry, inkjet is the horse that we’re all betting on, and it seems to be paying off a “trifecta” of excellent detail, reliable color, and competitive cost.
Williams: Photography has been under threat from inkjet for a number of years both on the narrow- and wide-format sides. Digital photography “liberated” the image from film and it now can be repurposed onto a variety of specialty items such as photo books, greeting cards, calendars, art, and even blankets, and printed using ink jet and electrophotography. Further, the image can exist virtually and can be viewed, shared, and saved on line. Photography is perhaps the first imaging technology to be replaced by digital—and it may not be the last.
Let’s talk green/sustainable printing: With the economic challenges of 2009 fully upon us, it appears that many customers and, hence, print providers, have put sustainable concerns in the number-two slot at best—do you agree? Will green bounce back once the economy does the same?
Marx: While it’s true that desperation is not the best conduit for environmental protection, companies committed to sustained growth should be focused on reducing environmental benefit. Although some companies start their journey toward sustainability for altruistic reasons or to make a difference, all companies ultimately find that the quest for sustainable practices brings significant, bottom-line benefits. Processes are streamlined, quality increases, “surprises” disappear, and the company is better positioned to face the future efficiently and effectively. Also, we find that large print customers (big box stores, for instance) have not put their environmental concerns on the back burner.
Williams: I don’t necessarily agree with the statement that print service providers have put sustainable concerns in the number-two slot. There is a group of print-shop owners in Europe and North America that have put the sustainability issue up front and live by it.
Florek: Businesses will become more environmentally friendly once business returns. Sustainable concerns, however, will not be the highest priority for print providers, nor even the second-highest priority. That’s because even when the economy was healthy, environmental considerations were outweighed by other factors. Image quality is likely to remain the most important factor for shops in the long run, followed by cost-efficiency.
Dundas: Green products and practices might not be in the center of the radar screen for many in the sign and digital graphics industries right now, but we expect this to change as economic conditions improve. Some strong incentives have already been created by federal, state, and local government policies for sustainable and eco-friendly practices.
Greene: I agree that it has kind of had to take a back seat, but the more advanced companies are pressing on with their sustainability initiatives because it is, in their opinion, “the right thing to do”—and because they believe it will give them a leg up on their competition when the economy rebounds. But yes, overall, I would say that the wider adoption of sustainable printing practices has been delayed by the economic conditions, largely because of the demands on the buyer side to de-emphasize “green” printing versus a lower-priced, non-green alternative.
Has the Sustainable Green Printing Partnership (SGP) made the impact on the market we thought it would 12 months ago? And are any other certification programs gaining traction in the wide-format market?
Williams: I think the SGP is one of the certification programs needed by our industry. Certification programs are a way for print shops to “prove” they are sustainable in a measurable way. Today, there’s a definite movement toward sustainability by many print shops. Some are doing it because their customers are asking for “green” products. Some shops see it as a differentiator, a way to stand out from the competition. Some shops are doing it because of a sincere belief and commitment on the part of ownership to be a sustainable business. For some shops, it’s a combination of all three.
Marx: While the SGP is still in its early stages, participation in the program—especially from those companies that have reached certification status—is meaningful. Increasingly, major consumer product brands and retailers are seeking suppliers who possess a sustainability “pedigree.” SGP provides that pedigree, and it will become increasingly valuable as the industry and its customers move forward. Further, SGP is an independent organization, and its third-party credibility gives SGP certification true meaning.
And, on a related note, it seems that what constitutes green/sustainable keeps being expanded, doesn’t it? For instance, I recently saw a reference to sustainable to now include hiring practices.
Dundas: It’s important to understand that sustainability is a holistic concept that includes not only products and manufacturing practices, but also the policies that define a business organization’s internal culture. This is more than just “pie in the sky.” For example, ISA member shops in the architectural signage segment already recognize that important aspects of their future prosperity depend on adopting green practices that conform to the operating principles embraced by their clients. Sustainable and eco-friendly practices not only help firms to attract new business, but also help them to save money by eliminating a broad range of inefficiencies.
Florek: If 2007 and 2008 were years of excess hype for sustainable solutions, 2009 might commence a period of inevitable reaction against environmental marketing. Indeed, the use of the term “greenwashing” is already widespread. To my mind, the problem with environmental marketing is similar to the problem with marketing total cost of ownership. In both cases, the numbers can be massaged to such an extent that OEMs can make any product seem to excel in terms of sustainability. It simply depends on the standard one uses.
Marx: Let’s take “green” out of the equation for a moment and view sustainability from an entirely different angle. Sure, we all have a sense of what environmental sustainability is, but let’s focus instead on corporate sustainability, which relates to keeping your company on track and on an even keel. Fair hiring practices are ultimately a liability issue tied to a regulatory framework, as are discrimination on the job, sexual harassment, worker safety, financial impropriety, etc. A company that has a plan in place to address these issues now, before they become problems, is much less likely to face a lawsuit, and is less likely to pay out stiff fines for regulatory violations or even stiffer court settlements. Protecting the environment, plus protecting your employees, plus meeting your regulatory and moral obligations equals sustaining your business for the long term. Think of it this way: “Sustainability” is people, planet and profit; “green” is environment only.
Is it the “usual suspects” of applications that will remain our market’s top applications? Or are there some specific applications that are now on the decline? Any others on the upswing?
Marx: Wide-format inkjet has allowed the development of a number of applications—banners, short-run signage, etc.—that are the “bread and butter” of most digital-graphics shops. These applications are well-established in our industry, but are also saturated with companies able to do the work. Price is the only point upon which companies can compete. Simply put, this is commodity printing. SGIA’s just-completed Market Trends Survey asked print providers to rate whether specific markets are rising or falling. The results are interesting.
Greene: The usual suspects are the core of the wide-format, digital-graphics business so, yes, I think those will remain the most important parts of the business. But I think there’s a long way to grow for applications like wall coverings. I think there are a lot of opportunities to market these into design and architectural firms for both commercial and domestic interiors. As far as applications in decline, based on the regulatory environment and the growth of digital billboards, I think that is one that could be in trouble.
Williams: The largest application continues to be point-of-purchase and retail signage, and outdoor applications continue to grow as a percentage of the market—from 25 percent in 2004 to 42 percent in 2008.
What type of print providers win right now—the “early adopters” or the “wait and see” shops?
Dundas: “Wait and see” probably isn’t a feasible option for most firms in the contemporary world of business. Even in difficult economic times like the present, adopting new technology represents a key strategy for maintaining a competitive edge. But any new technology, of course, also must represent a good fit in terms of a firm’s core business model.
Marx: There are a lot of shops playing “wait and see” right now, and it’s perfectly understandable for companies to focus on what they do well and do it with the equipment they have until times are a bit more certain. While that is going on, however, other enterprising companies are gearing up and training up to hit the ground running and emerge from the downturn stronger, better equipped, and ready to again grab for the brass ring. Being ready requires training, investment, and a bit of a gamble. Waiting to see what happens puts companies in a reactive mode. For the “big prize,” I’d bet on an early adopter.
Florek: I think the most important thing for “early adopters” and “wait and seers” alike is to stand apart from their competition and create a stable business niche. Given the state of the economy, it’s likely too late for print providers to adopt a technology that would change their fortunes. However, those shops that adopted new technology before the downturn are likely reaping the benefits of greatly expanding their capabilities. On the other hand, firms that adopt new technology should be wary of expanding their production capacity in a market that would not support it.
Greene: Obviously it is better to be first-to-market, but to borrow a term: “Pioneers can end up with a lot of arrows in their backs.” To me, the key is to establish close relationships with others in the industry in order to share ideas and information; work closely and candidly with your suppliers; and stay in front of your customers as often as you can without annoying them.
In the past six months, a much higher percentage of shops’ customers seem to have become all about price—everything else can fall by the wayside. Are you seeing this?
Florek: Definitely. In fact, you probably could point to the collapse of Lehman Brothers as the moment confidence tanked and price became the preeminent business concern. The obsession with cost-cutting extends to streamlining production and paring back the cost of labor. Price has also been a leading factor in purchase decisions of late, affecting everything from hardware to media. For example, we’ve seen an awakening of interest in aftermarket ink (although end users may be merely interested and remain loyal to their OEM ink). Once the economy recovers, this behavior may relax, but the possibility exists that lower prices will commoditize some wide-format markets.
Williams: I wouldn’t necessarily agree. Some companies, such as cosmetics companies, are looking for high-quality signage. In every market, there are companies that are looking for high-quality products and some that look for the lowest price. And in the wide-format, print-for-pay market, there are companies that focus on both of these types of customers. Print-for-pay shops looking to get out of the commodity segments continue to redefine themselves to serve the high-quality segment, and they have done this since the market began in the mid 1990s. There we saw print shops specializing in dye sublimation to fabric as a way to differentiate themselves. Today, shops continue to do this both with the printers they have in their shops as well as the level of service/consulting they offer customers.
Dundas: Tough economic conditions tend mainly to reward organizational efficiency and excellent customer service. Competitive pricing can often be a byproduct of improved efficiency but, by itself, price-cutting is not a reliable strategy for success. In the long term, successful firms are those that effectively communicate the importance of factors transcending price.
Greene: Price is a critical issue. In one of our recent studies with 300 professional wide-format print buyers, they identified price as their number-one purchase decision criteria but not the only decision criteria. The ability to service these accounts—produce acceptable quality jobs in the time they need them—is also important.
Marx: While most of our industry is serving just a handful of major markets, there are hundreds of applications and end products currently being served or produced with digital printing technology. For companies competing solely on price, a look beyond the obvious may be in store. For those companies that can successfully differentiate themselves from the pack, there is a whole different mode of operation—a different mindset—where companies focus on unique applications and non-commoditized markets that can offer exclusive opportunities and non-commodity-based revenue opportunities. Companies should look carefully at their core competencies, explore niche markets, understand demand in the region served, identify a business target, and go, go, go.
What actions are shops not taking that they should be to ensure a more prosperous bottom line?
Greene: One of the things that companies could do a lot more of is take a more vertical marketing approach to the market—analyzing the companies in their local market and understanding the types of applications these companies may need—from trade-show support to employee-training events, and marketing these applications like crazy.
Marx: Too few companies are keeping a keen eye on all of the innovation that’s going on within our industry. As much as people pay strong attention to the printing device, I think they miss the things that are going on in finishing technologies, laminates, new substrate materials, and in other areas, even though these areas are where much of the differentiation that leads to new opportunities exists. They must also take the time to ask, “How can I use this new innovation to grow my business, if at all?”
What particular applications and niche markets do you see looming large for the rest of ’09 and into 2010?
Florek: Beyond the usual suspects, the wide-format industry can take solace in a number of niche applications. Print providers are increasingly successful in marketing wallpaper to prospective customers. In general, I think decorative graphics are an area of great potential, especially as media manufacturers offer more sophisticated substrates that are compatible with aqueous and even solvent and UV-curable inks. If household spending picks up (admittedly a big “if” over the next two years) retailers may see a recovery and P-O-P spending will accelerate. In general, the increasing sophistication of retail graphics and the demand for short-run P-O-P augers well for this wide-format segment.
Greene: I mentioned wall coverings earlier. I’m a big believer in that because of the potential appeal to a very wide market. I am also very positive on the re-emergence of P-O-P and window graphics for their ability to drive sales, a key to recovery in the retail market.
Any parting comments as readers wrap up 2009 and make plans for 2010?
Florek: This is a tough time for the wide-format industry, but the future is not as bleak as it seems. Manufacturers are hard at work to make their products accessible to a wider market. There has been a flurry of software and workflow solutions that can help print providers run better and more smoothly. The market has stabilized, and there are actually a few signs of life. Still, an industry-wide shakeup is occurring and there will probably be fewer firms operating in a couple of years. The challenge for end users is to communicate why wide-format print is necessary. It is absolutely crucial for shops to explore and create new markets.
Greene: Most of the suppliers in the wide-format, digital-graphics market have resources that print providers can use that could help them either grow their business by expanding the range of applications they produce or save money through more cost effective production techniques. These can include things like sponsorship of open-house events, application-awareness campaigns, or low-cost “how-to” application training events. Print providers should be unabashed about asking their sales reps or dealers for access to these services and resources. Manufacturers want you to work with them. Take advantage of these opportunities. They are almost always obligation-free and could be a real boost to your businesses., corporate branding, and business-to-consumer markets, according to the recent SGIA Market Trends Survey. “We thought it would be interesting to see not just how many companies, as a percentage, are serving specific markets,” says SGIA’s Dan Marx, “[but also] to see if these markets are rising in popularity or declining.”